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Month: April 2009

Lately I’ve been reading opinions about the market that tell their readers not to be too worried about inflation. Sure, they’ll admit that expanding the money supply correlates sharply with inflation, but they tell me that Ben Bernanke will take all that liquidity out of the system when the time is right. I have no idea where they get this idea; Alan Greenspan certainly wasn’t able to contract the money supply after he inflated it to ward off recession. Do we really believe that Ben Bernanke is going to do any better?

One opinion I read indicated that mopping up inflated money supply. After all, all the Fed had done was monetized the government’s debt. Since that debt is held in the form of US Treasury bonds, it should be easy to contract the money supply again by simply selling the bonds. The author of this opinion was rather misinformed, because they did not seem to understand that when the Fed monetizes bonds, it does so with money that it yanks out of thin air. The money then enters the system by way of the bank. Continue reading Can the Fed Tighten the Money Supply in Time?

I’m amazed, but somehow the former Bush Administration still has the power to piss me off. Back when Bush was in office, the official word was that American didn’t use torture. Except that Bush officials gave a bit of a wink and a nod when the topic came up and Bush himself added a signing statement to the anti-torture bill saying, in effect, “It’s only torture if we say it is.”

Now that Barack Obama has released official memoranda that show that we were, in fact, engaged in torture, two former Bush Administration officials have come out in opposition to the release. From Bloomberg:

But in an editorial in The Wall Street Journal, former CIA director Michael Hayden and former attorney general Michael Mukasey charged that disclosure of the memos “was unnecessary as a legal matter, and is unsound as a matter of policy.”

Here’s a fun tidbit from our friends at the Federal Reserve, out economy is not going to be getting any better this year. When last they spoke (oh, gosh, must have been.. four weeks ago) they said that the best we could hope for would be an economic recovery in late 2009. Now they’ve since come out and said that we would see no recovery this year.

Hmmm. Well if that’s the case, why is the government spending all of this money to “stimulate” the economy and bail people out? Was that to speed us to a swift recovery? Now I understand that back before the days of the Fed, when downturns or banking panics would happen, that they might take a year or so to work themselves out. The Panic of 1907 took less than a year. The Panic of 1893 didn’t see the market bottom for more than a couple of years. But that was back in the economic dark ages. Back when our money was backed by gold and we didn’t have sage bureaucrats or wise central bankers ready to print money at the drop of a hat (roughly $13 trillion and counting according to Bloomberg) to bail everyone out. Why, wasn’t the whole reason for all of this stimulus and bailout so that we wouldn’t have to far a protracted economic downturn?

Well, that was the justification given for it anyway. Liquidation doesn’t work is what Ben Bernanke told us, it just makes things worse. So instead let’s bail out the troubled economic actors and get back on the road to a quick recovery. The Fed is now admitting that this recovery of there’s is not going to come quickly. In fact, in comparing the amount of time old style economic liquidations used to take compared to take, the post economic recoveries of the Fed era seem to take quite a bit longer. As I discuss in my book, when you compare the economic history of the pre-Federal Reserve era to what took place after the Fed, it’s pretty clear that we went from an era of frequent economic panics to infrequent economic collapses. That suggests that all the Fed is doing is to postpone an economic downturn until later, but at the cost of greatly adding to its length. Which isn’t really all that great of a service to society when you think about it? Continue reading Fed Sees No Recovery in 2009

On a broader level, however, such incidents may be happening more often because an increasing number of Americans feel desperate pressure from job losses and other economic hardship, criminologists say.
“Most of these mass killings are precipitated by some catastrophic loss, and when the economy goes south, there are simply more of these losses,” says Jack Levin, a noted criminologist at Northeastern University in Boston.
Direct correlation between economic cycles and homicides is difficult to prove, cautions Shawn Bushway, a criminologist at the University at Albany in New York. But an economic downturn of this breadth and depth hasn’t been seen since data began to be collected after World War II, he also points out. “This is not the average situation,” Mr. Bushway says.
Still, criminologists do say that certain kinds of violent crimes have risen during specific economic downturns. The recession in the early 1990s “saw a dramatic increase in workplace violence committed by vengeful ex-workers who decided to come back and get even with their boss and their co-workers through the barrel of an AK-47,” Mr. Levin says.
And in the midst of this downturn, one study released Monday in Florida finds a link between domestic violence and economic tragedies like job loss and foreclosures. The Sunshine State saw an almost 40 percent jump in demand for domestic-violence centers, an increase related to the state of the economy, the study says. George Sheldon, secretary of Florida’s Department of Children and Families, calls the situation “the worst I’ve seen in years,” according to the Associated Press. Continue reading Murder-Suicide Rates on the Rise as Economy Slumps

Well, I’m beginning to get clients seeking my investment recommendations. I think a lot of the investment advisory business is driven by what advisers can profitably sell, and not necessarily what’s most lucrative or best for the client. When you’ve got your country’s central bank working hand-in-hand with your government to inflate your money supply by trillions of dollars in high-powered money (this year alone), holding physical gold and silver becomes a must.

There are many investment vehicles available for purchase that allow you to participate in the appreciation of the Comex gold price, but they also all involve some form of counter-party risk. The beauty of gold ownership? It’s a form of wealth that isn’t someone else’s liability. This is important, and lose when purchasing gold through an intermediary. Part of the reason most never bother to learn investing or money management is that it’s made artificially complicated by the profession of accounting, as well as the pseudoscience that is Economics. The average person wanting to learn about money is bombarded with terms they don’t understand and notions that make little sense; my favorite among them being that the Fed is there to protect the value of the US Dollar by making it gradually worth a bit less each year so that, as a nation, we may prosper. Such bizarre statements defy rational explanation because they just don’t make sense, which in turn confuses people who are ready to soon seek comfort in the blind belief there are experts out there who do understand this arcane esoterica, and they’re better off just placing their faith in them.

Of course, they would be mistaken. The foundation of the modern American financial system rests securely upon this ill-placed faith in experts being able to manage what we as individuals cannot begin to fathom, and soon don’t even want to try. Knowledgeable central bankers manage the currency so as to allow smart, capable CEOs to grow the bottom line while accountants and regulators ensure that everyone’s playing by the rules. Every era has a mythology that holds it firmly together; this view of our financial system seems to be ours. The trouble (for those in power, that is) seems to be that in recent times, these myths are being exposed for being just that: myths. Continue reading An Inflation Survival Kit

According to Rob Arnott’s recent article to be published in the Journal of Indexes, bonds outperformed stocks as an asset class from 1968 through today. (You can read a condensed version of the article here.) That’s interesting news for those of us who have always been skeptical of the stock hounds. Dr. Jeremy Siegel said in his book Stocks for the Long Run that stocks reliably outperform bonds over a sufficiently long time horizon and so, Siegel argues, you really shouldn’t bother with bonds at all.

I was critical of Dr. Siegel’s advice in my book because, along with bonds, he has a long history of being critical of gold investors. For Siegel, and most conventional investment professionals, they have but one tool in their tool box; for them, it’s always a good time to invest in stocks and never a good time to be invested in bonds or gold. I’m always pleased to see when my criticism of an idea was well placed, and I so I find Rob Arnott’s article rather vindicating. Bonds outperformed stocks over the last fourty years, which begs the question of exactly how long a time horizon you need to be invested for Dr. Siegel’s advice to be holding true. For most people, fourty years is longer than their investment time horizon.

This forty year time span wasn’t actually the longest time period where bonds outperformed stocks. Going back all the way to 1802, there was a 68 year period (from 1803 to to 1871) where bonds also outperformed stocks. What’s even worse news for the stock hounds is that the news is just going to get worse from here. Continue reading Bonds Outperform Stocks Over Last 40 Years